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Less Than 4 Percent of Lenders 'Acceptable' According To New Risk Assessment Tool

Mar 11 2013, 9:35AM

Risk profiling of mortgage license holders was one of the
focuses of 2012 activity by the Multi-State Mortgage Committee (MMC) of the Conference
of State Bank Supervisors and
the American Association of Residential Mortgage Regulators. The committee issued a report on Friday
detailing its 2012 activities which also included participation in work leading
up to the $25 billion National Mortgage Servicing Settlement.

Committee
Chairman Charlie Fields, Director of Non-Depository Entities at the North
Carolina Office of the Commissioner of Banks said the MMC's Risk Profiling
Group (RPG) has been working on a risk profiling tool designed to assess an
institution's risk against its peer group based on an analysis of Mortgage Call
Report (MCR) data. A risk analysis of
281 companies holding licenses in more than 15 states resulted in an unexpected
result. Only 10 of the 281 companies had
data integrity high enough to be considered acceptable for profiling purposes. These data quality concerns warranted notice
to those companies informing them that they needed to rectify their filings, as
they were in violation of state laws implementing the federal SAFE Act. The MMC
also sent a letter to each mortgage regulator informing them of the issue. The majority of the companies immediately responded
and ultimately filed amended call reports of improved quality. The RPG also concluded that the metric scheme
it developed to identify effective risk weights appears to be quite
accurate.

This
tool will assist in the scheduling of mortgage companies identified as having
an elevated level of lending risk. Current
plans are for the tool to be available to state regulators in 2013.

Fifteen
Limited Scope Electronic Examinations were conducted during the year. These focused on using compliance software to
determine what degree of compliance violations exist within a loan
portfolio. Nine of the 15 examinations
were completed; six were closed satisfactorily; one was closed satisfactorily
pending compliance with violations of state law, one company elected to
surrender its licenses and dissolve and a third was recommended for a full
scope examination. Resolution of the
remaining six examinations are pending, delayed for multiple reasons but
examiners concluded that many companies do not follow through with accurate
data input after the loan is closed and that some data was inaccurate, .

The
examinations found that finance charges tended to be an area that had
substantive inaccuracies. The LSE
routinely exposed mistakes in this area and refunds were quite substantial for
many borrowers, ranging from several hundred dollars to several thousand, up to
$6500.00 at one mortgage company.
Charging prohibited fees was another area that showed significant
violations, resulting in one company refunding many borrowers on average over
$500.00. Other typical operational
deficiencies and violations identified in this group of examinations were
excessive credit reporting fees and the failure to itemize HUD 1 charges,
re-disclose the APR, meet minimum records requirements, provide rate lock agreements
or RESPA disclosures within the legal timeframe

Some
of the LSE examinations have or will move to full scope examinations where it
is anticipated examiners will depend on technology to assist them in
determining the compliance posture of the companies they review. The MMC feels strongly that the sampling
techniques used in the past are insufficient to examine large loan portfolios and
that through technological advancements a complete review of a lender's loan
portfolio is the most effective way to ensure a strong and vibrant lending
industry.

The
report says that MMC devoted a considerable amount of time and resources to the
mortgage loan servicing area including participation in the examinations and
notifications that led to the National Mortgage Settlement. Now several additional loan servicing
companies have been examined by state regulators and found to have essentially
the same degree of operational deficiencies as the large servicers involved in
the national settlement. These companies
do not have the same financial size or scope of the larger servicers, and so
any plan to correct their deficiencies will need to be substantively different. Currently the MMC is leading negotiations
that will attempt to incorporate most of the servicing standards included in
the National settlement, while attempting to bring relief to as many borrowers
as possible.

Other
activities of the MCC over the course of 2012 include:

Continuing to
refine the processes that enable many states to come together and complete
examinations of the mortgage companies that bridge state borders.

Assembling a
working group to create a program to assist in the examination of residential
mortgage loan originators' controls, policies, and procedures to comply with
the Bank Secrecy Act and Anti-Money Laundering requirements that became
effective in August 2012.

Acting as the
primary point of contact with the Consumer Financial Protection Bureau (CFPB)
for state mortgage regulators. The MMC
and the CFPB are coordinating the scheduling of examinations to eliminate
excessive burdens on the entities under review.

Comments

Same old Thing! Whether we talk about Software or fundamental methodology and technology, we still have inadequacies. In a conduit setting and self origination. The most dangerous are still massive Broker "methods" less than adequate or reliable. And bad transition from one major area to the other.
In the receiving Bank there will be inadequate verification of information. and in compliance, One has to have Created an auditing capacity capable of electronically, optically and mathematically efficient that fits your product and can immediately adjust.
No Third Party Software can do that!! Software sufficient to teach, produce each worker and self-audit the birthing information of the loan and be changed modified easily and immediately! WHY?
Because of our old and new structures of origination requiring massive detail of information verification to the Servicing Agency that is using "Third party software" built by big software providers that do some, never all of the job and cannot modify quickly for your specific needs to monetary efficiency and legal safety.
Servicers must be immediately reactive to "special" needs in "their" process. They call the Third Party Software provider and say we need these modifications that do not fit the general capability you've provided. "Their answer, We'll get that to you" HA!
Come into the Present!!
Facebook will be successful! and modify to new needs to be different and better Why? They built their own software that include each and every function in their entire processes in every department.
Twitter will be successful because they built their own software that handles every aspect of their business to be creative and consistently ahead of others. HOW? They made their own!!
Show me one major Funding Bank and servicing entity in mortgage that has constructed Exclusive Software that is 1.Originator, 2. Conduit processor, 3. Servicer, 4. (Master Servicer electronic Overseer of all other functions) "My Definition", 5. Securitization creator and Derivative creator with full audit and tracking through its life even through sale and resale. Do you have a self constructed software that can complete all these functions successfully on one platform?
BOTTOM LINE!!
When you allow third party platforms you admit defeat. You accept being part of the crowd that will all make loans that shouldn't be made. And it will cost you so much more overhead!!!
The few that has created their own will be so financially efficient they get the best loans cause they can afford them and you'll wind up with the sludge the same as most of the others once again. SAD! Old ways, old results!

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